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Wagner Daily Lite – February 9, 2012 ($TBT, $VFC)

February 9, 2012

Stocks closed modestly higher yesterday on brisk trade. All five major indices finished in positive territory, with the Nasdaq showing the most resiliency. The tech-rich index added 0.4%. The S&P 500 gained 0.2%, while both the small-cap Russell 2000 and the S&P MidCap 400 added 0.1%. The Dow Jones Industrial Average ended the session fractionally higher. Sector ETFs showing the most relative strength included oil services, internet, emerging markets, solar energy and networking. Weaker sectors included natural gas, healthcare, pharmaceuticals and transportation.

For a second consecutive day, market internals provided a modestly bullish signal. Volume on the Nasdaq increased by 10.9% and 6.9% on the NYSE. Advancing volume outpaced declining volume by a ratio of 1.5 to 1 on the NYSE and 1.8 to 1 on the Nasdaq. The Nasdaq qualified for an “accumulation day” yesterday, as the index gained 0.4% on increasing volume. The ongoing lack of institutional distribution and positive market internals means the overall tone of the market remains healthy.

Since October 2011, the UltraShort 20yr + Treasury Fund (TBT) has been consolidating between $18.00 and $19.75, and appears to be forming a base from which to launch a possible reversal move higher. The 20-day exponential moving average has crossed above the 50-day moving average, and TBT is now trading in a tight range above both of those indicators. Further, TBT has been setting a sequence a higher lows over the past several weeks. If TBT can move above the 2-day high of $19.50 on a pickup in volume, it may present a buying opportunity. As such, we are monitoring TBT as a potential long candidate. The trade setup  is illustrated on the daily chart below…

(charts available in today’s Wagner Daily newsletter)

Per Intraday Trade Alert, we sold VFC in the morning to take advantage of a 6-point move on a two-day hold. With VFC approaching resistance of its prior high, we decided to take the easy money and run. We gained about 4.4% on the trade, with an initial risk of just 2.6%. This equates to a reward-risk ratio of 1.7 to 1, which is pretty good considering the brief 2-day holding period…

The commentary above is an excerpt from our nightly Wagner Daily newsletter. Subscribing members receive annotated ETF and stock charts, detailed entry and exit prices for potential swing trade entries, and additional technical market commentary.

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